On Wednesday, Citi analyst increased the price target for Urban Outfitters, Inc. (NASDAQ: URBN) to $42.00, up from the previous target of $39.00, while keeping a Neutral rating on the stock. The adjustment comes ahead of the company's third-quarter earnings report, which is anticipated after the market closes on November 26.
Citi predicts that the company will surpass third-quarter earnings per share (EPS) expectations, citing stronger than consensus gross margins. Despite recent challenges due to unseasonably warm weather affecting apparel trends, the analyst sees these as temporary setbacks.
He notes that the comparable store sales at Free People (FP) and Anthropologie (Anthro), two of Urban Outfitters' key brands, are performing well and could potentially see further improvement with the approach of Black Friday.
The analyst also expects gross margin (GM) upside in the third quarter, driven by fewer promotions than anticipated at Anthro and FP, as well as promotional recovery at the Urban Outfitters brand, which is projected to continue into the fourth quarter. Although management may adopt a conservative stance regarding fourth-quarter guidance, Citi believes that consumer turnout for the holiday season will be strong. He suggests that any indication of improved performance at Anthro and FP could lead to increased optimism regarding Urban Outfitters' ability to achieve an EPS of over $4.00 in the following year.
Citi concludes that with the stock currently trading at a forward fiscal 2025 price-to-earnings (P/E) ratio of 9.5x, and with market expectations remaining low, the risk/reward profile for Urban Outfitters' shares is favorable in the lead-up to the third-quarter earnings release. Consequently, Citi has initiated a 30-day positive catalyst watch on the company.
In other recent news, Urban Outfitters Inc (NASDAQ:URBN). disclosed its earnings for the first half of the fiscal year, reporting a Q2 record of $1.4 billion in total sales, a 6% increase. This growth was largely driven by a 2% increase in the Retail segment comparable sales, with significant gains in its Anthropologie and Free People brands, and its subscription rental service, Nuuly. Despite a decline in its namesake brand, the company reported a 13% increase in net income to $117 million.
Urban Outfitters is implementing strategic changes, including a revamp of the brand, focusing on five pillars for recovery. For Q3, the company expects mid-single-digit total company sales growth but anticipates a decline in gross profit margin primarily due to higher markdowns. As part of their strategic shift, Urban Outfitters plans to expand product offerings, grow its customer base, and enhance the selling experience across all channels, aiming to become a $3 billion brand.
InvestingPro Insights
Urban Outfitters' financial metrics and market performance align with Citi's optimistic outlook. According to InvestingPro data, the company's P/E ratio stands at 11.25, which is relatively low compared to its projected earnings growth. This supports Lejuez's view of a favorable risk/reward profile for URBN shares.
The company's revenue growth of 7.57% over the last twelve months and a robust EBITDA growth of 32.08% in the same period indicate strong operational performance, potentially driven by the success of Free People and Anthropologie brands as mentioned in the article.
InvestingPro Tips highlight that URBN is trading at a low P/E ratio relative to its near-term earnings growth, reinforcing the analyst's positive stance. Additionally, the company's ability to cover interest payments with its cash flows suggests financial stability, which could be crucial as it navigates the upcoming holiday season.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for Urban Outfitters, providing deeper insights into the company's financial health and market position.
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